The Benefits of A Cash Balance Plan For Sole Proprietors

After several years of growing her consulting practice, this business owner started to think about getting prepared for her own retirement. At 50 years old, she found herself behind in her retirement savings. She'd recently finished paying college tuition for her son and was starting to make money in her company. The success of her business also brought a higher tax bill along with it. She reached out to our team for guidance and to understand her options. We carefully evaluated this business owner's situation and recommended adding a cash balance plan to her existing 401k profit sharing plan. We explained that cash balance plans allow employers to deduct significantly higher contributions than they can with a 401k profit sharing plan alone.

As a sole proprietor, this business owner had no other employees so she had the flexibility in deciding how much she wanted to make in annual contributions. With this new approach, we helped her accelerate her retirement savings and minimize her annual tax liability for her growing business. I'm happy to report that after eight years of participation in the two plans, she now has $2 million set aside for retirement. In 2022, her total deductible contributions were $360,000, which saved her about $150,000 in taxes for the year.

Working with our team helped this business owner create a new and effective retirement strategy that made the most sense for her as an individual and also for her budding business. A cash balance plan can be a great solution for many clients, whether they're corporations, sole proprietorships, or partnerships. If you're interested in learning more about cash balance plans or other ways we can support you and your business, check out our website at eisneramper.com. Thank you.